Blog #30 - The Missing Link Between Demand and Supply
A few weeks ago I wrote about dairy planning and the cows that don’t care about your forecast. The comments that followed were more interesting than the blog itself. Practitioners from poultry, aviation, wine, timber, and commodities all said the same thing: “We’ve got a version of that.”
Not the cows specifically. The gap.
The Textbook Version
The standard IBP cycle is a brilliant piece of thinking. Product Management Review. Demand review. Supply review. Reconciliation. Executive review. Understand what customers want, figure out how to deliver it, balance the two, decide. It works beautifully - when demand is the independent variable and supply responds to it.
But for some industries, it’s not quite that simple.
The Gap Nobody Named
When a single input becomes multiple outputs - milk into cheese, powder, and butter; logs into structural timber, appearance boards, and pulp; crude oil into petrol, diesel, and jet fuel - there’s an allocation decision that shapes everything downstream.
Which products do we make? Which commitments do we prioritise? Where do we chase margin versus volume? This isn’t a production scheduling question. It’s a strategic portfolio decision with physical, financial, and commercial dimensions that need to be resolved together.
And it has to happen after you understand demand, but before your supply plan is locked in. It doesn’t live in either review. And no - the reconciliation review is too late. By then, you’re reviewing a plan that was built on allocation assumptions nobody formally made.
It’s Not Just Process Industries
Your version might not involve milk or timber. But if your business has a shared resource that’s constrained or forced, serving multiple demand streams, you’ve got the same problem.
Semiconductor fabs deciding which products get wafer capacity. Airlines rebalancing fleet across routes when demand shifts. A sales team with finite bandwidth choosing which channels to prioritise. Any business where someone is deciding who gets the constrained resource - that’s your version of the missing link.
The Real Problem
Here’s the thing: if you can’t point to where this decision is formally made in your IBP cycle, it’s still being made. Often very well - by smart people with deep expertise. But usually in isolation from the broader commercial strategy, the demand signals, and the financial plan. Not because anyone chose to disconnect it. Because the standard process never gave it a seat at the table.
The five-step IBP cycle is the heartbeat of your planning process. This allocation step is the brain. One keeps the rhythm. The other makes you intelligent.
And right now, in a number of businesses, the brain is operating outside the body.
So - Where Does This Live in Your Business?
Who makes this allocation decision? When in the cycle does it happen? Is it governed, or is it invisible?
If you’ve built this into your process - I’d love to hear how. And if you haven’t, you might want to ask who’s making it on your behalf.
I don’t write these to chase work. I write them because too many planning processes run on autopilot, and nobody says anything. If it sparked a thought, that’s enough. If you want to talk about it, I’m at planninglab.co.nz/blogs.
#IBP #S&OP